What Are the Main Rules for IRA Withdrawals During Retirement?


Quick Answer

Retired IRA owners can withdraw funds from their traditional IRAs without penalty when they reach the age of 59 1/2, reports the Internal Revenue Service. When account holders reach 70 1/2, they must initiate required minimum distributions from their IRA to avoid penalties.

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What Are the Main Rules for IRA Withdrawals During Retirement?
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Full Answer

If retired IRA owners wait until they are 59 1/2 to begin withdrawing funds from their accounts, they only need to pay standard income tax on the distributions, explains the IRS. If they begin withdrawing IRA funds before they are 59 1/2, they must pay a 10 percent penalty tax on the amount distributed unless it qualifies as an exception. Exceptions include the complete disability of the account owner, medical bills over 10 percent of adjusted gross income, funding for a first home, higher education expenses and a series of substantially equal payments.

IRA owners must begin taking annual payments, known as required minimum distributions, from their accounts by April 1 of the year after they turn 70 1/2, according to the IRS. They calculate the distributions by dividing the balance in the account as of December 31 of the previous year by a factor in an IRS life expectancy table. The IRA owner is responsible for calculating the amount of the withdrawal each year. The penalty for an IRA owner not taking the required minimum distribution on time is 50 percent of the amount that should have been distributed.

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